Friday 22 January 2021

CH 15 -Change in Profit Sharing Ratio

0 comments

(15) Change in Profit Sharing Ratio

 

Treatment of Investment Fluctuation Reserve:

 

This reserve is created out of firm’s profit of meet the fall in the market value of investment. This reserve is treated as follows:

 

Illustration:

 

P, Q and R sharing profit of loss in the ratio 3:2:1. How decided to share future profit equally. Following is the balance sheet:

 

Liabilities

Assets

Investment Fluctuation Reserve (IFR)

30,000

Investment (at cost)

5,00,000

 

Show the Accounting treatment:

(i) If there is no information

(ii) If the market value of the Investment is 5, 00,000

(iii) If the market value of the Investment is र 4, 88,000

(iv) If the market value of the Investment is र 4, 4, 6000

(v) If the market value of the Investment is र 5, 0, 6000

 

 

Date

Particular

L.F.

Dr.

Cr.

(i)

 

 

 

 

 

(ii)

 

 

 

 

 

 

 

 

(iii)

 

 

 

 

 

 

 

 

(iv) (a)

 

 

 

 

(b)

 

 

 

 

 

 

(v) (a)

 

 

 

 

 

(b)

 

 

 

(c)

Investment Fluctuation Reserve A/C                         Dr.

To P’s Cap. A/C

To Q’s Cap. A/C

To R’s Cap. A/C

(Excess IFR to Cap. A/C in old ratio)

 

30, 000

 

 

 

 

 

30,000

 

 

 

 

 

 

 

 

30,000

 

 

 

 

 

 

 

 

30,000

24, 000

 

 

 

12,000

8,000

4, 000

 

 

 

 

30,000

 

 

 

 

 

6,000

 

 

 

6,000

 

 

15, 000

10, 000

5, 000

 

 

 

15, 000

10, 000

5, 000

 

 

 

 

 

 

12,000

 

9, 000

6, 000

3,000

 

 

 

 

54, 000

 

 

 

 

 

24, 000

 

 

 

 

15, 000

10, 000

5, 000

 

 

 

6,000

 

 

 

3,000

2,000

1,000

Investment Fluctuation Reserve A/C                         Dr.

To P’s Cap. A/C

To Q’s Cap. A/C

To R’s Cap. A/C

(Excess of IFR transfer to Cap. A/C in old ratio)

Investment Fluctuation Reserve A/C                         Dr.

To Investment (5, 00, 000-18, 8000

To P’s Cap. A/C

To Q’s Cap. A/C

To R’s Cap. A/C

(Excess IFR to Cap. A/C in old ratio)

IFR A/C                    Dr.

Revaluation A/c    Dr.

To Investment

(Fall is value of Investment charged to Revaluation A/C   

P’s Cap. A/C          Dr.

Q’s Cap. A/C         Dr.

R’s Cap. A/C         Dr.

To Revaluation A/C

(Fall is value loss transfer Cap. A/C in old ratio)

IFR A/C                    Dr.

To P’s Cap. A/C

To Q’s Cap. A/C

To R’s Cap. A/C

(Excess of IFR transfer to Cap. A/C in old ratio)

Investment A/C     Dr.

To Revaluation A/C

(Value of Investment brought up)

Revaluation A/C    Dr.

To P’s Cap. A/C

To Q’s Cap. A/C

To R’s Cap. A/C

Profit on revaluation dismasted in old ratio)